Regulations on the rise: How to monitor the rapidly evolving ESG landscape

6  September 2018 - By Elina Yumasheva

Since 2013, the world has seen a 72 percent increase of the number of recorded regulations concerning non-financial issues. At the moment there are more than 4,000 non-financial regulatory initiatives, including mandatory regulations and voluntary initiatives. 

Datamaran Global Insights Report 2018 shows that the diversity of issuing bodies of such regulations and voluntary initiatives is wide. It varies from the market regulators, national governments, local and national legislature to non-for-profit organisations and international government organizations. 

Depending on a sector and a geography of operations some of these issuing authorities become more prominent and some take a back-seat. Nevertheless, this clearly indicates the trend that ESG issues are being picked up by a variety of stakeholders and are expected to be addressed by companies as part of business as usual. 

Some may argue that voluntary initiatives do not have the same influence as compulsory legislation. However, the evolution of accountability shows us it is only a matter of time before prominent voluntary initiatives will become mandatory regulations, as such being ahead of the curve will help businesses mitigate any backlash. The EU Non-financial Directive is a good example of this trend. Starting as a voluntary initiative it took the form of a mandatory regulation in 2018.

Recent ESG regulations and initiatives

Other mandatory regulations and voluntary initiatives that have been published in the recent years and are believed to have a profound impact on companies’ ESG approaches according to Datamaran Global Insights Report 2018, include:

  1. Climate Change Disclosure in G20 countries - Stocktaking of corporate reporting schemes, 2015
  2. EU Regulation 2016/679 General Data Protection Regulation (GDPR)
  3. Recommendations of the Task Force on Climate-related Financial Disclosures, 2015
  4. Corporate Governance Principles For Banks, 2015
  5. Digital Privacy Act of Canada, 2015
  6. International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation (FATF) Recommendations, 2012
  7. Model Guidance on Reporting ESG Information to Investors, 2015
  8. Decision No 1386/2013/EU on a General Union Environment Action
  9. Programme to 2020 'Living well, within the limits of our planet' Good Business: Implementing the UN Guiding Principles on Business and Human Rights, 2013
  10. The Paris Agreement on Climate Change, 2015
  11. The UN Guiding Principles Reporting Framework, 2015
  12. Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (4th Anti-Money Laundering Directive)
  13. Directive 2014/65/EU on markets in financial instruments (MiFID II)
  14. National Action Plan on Responsible Business Conduct
  15. Cybersecurity Requirements for Financial Services Companies, 2017
  16. Dodd-Frank Wall Street Reform and Consumer Protection Act (DFA), 2010

A big question business needs to get to grips with today is how to navigate the complexity of the constantly evolving ESG regulatory landscape. What voluntary initiatives are worth a consideration? How to identify the trends across the most regulated regions and sectors, so businesses can get prepared for what is coming up in their home regions and sectors? Importantly, what material non-financial topics are emerging and developing?

Integrating ESG into Enterprise Risk Management (ERM)

Not only do we see a rapid rise in regulation but In the last year alone, organisations such as: the TCFD, The World Economic Forum, The World Federation of Exchanges (WFE), and a joint work by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and the World Business Council for Sustainable Development (WBCSD) - have all published their recommendations on how they expect companies to manage and disclose their non-financial risks. This indicates the level of seriousness with which ESG issues are now treated.

This is why a number of progressive companies have already been adopting an ERM approach to managing non-financial risks, including the likes of; ING and Novo Nordisk. 

Materiality carries an internal and external informational value for the ERM processes. As indicated in the new revision of the ESG Guidance & Metrics published by the World Federation of Exchanges, investors are pushing companies to disclose in detail their materiality analysis process. Hence, robust, data-driven evidence of material non-financial issues is essential to ensure that risk factors associated with ESG can be identified and characterized in terms of likelihood, impact, velocity.

With an increase of the ESG-related recommendations and regulations, navigating the complexity of non-financial risk management has never been more timely. The earlier companies understand that monitoring and managing non-financial issues should be a systematic and continuous process, the easier an adoption of ever growing ESG regulatory landscape will become. 

The Rise of ESG regulations: Is your risk radar robust enough?

How to ensure a systematic monitoring and analysis of non-financial risks are part of your corporate strategy? How can business respond to ever growing ESG-regulatory demands?

Watch the webinar on 19 September to hear from Paul Sobel, Chairman of COSO, Evan Harvey, Global Head of Sustainability at Nasdaq, and Susanne Stormer, VP of Corporate Sustainability at Novo Nordisk about what it takes to embed non-financial risk monitoring and management as part of business as usual.


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